Why is FRAND bad for Free Software?

am 2016-06-20

FRAND ("fair, reasonable, and non-discriminatory") is an acronym
used to refer to a wide array of patent licensing practices
developed in the context of industry standards.

Despite a technology being standardised, it is still possible
for someone to hold a patent over it in some jurisdictions. Since
commerce is global, this forces everyone to ask the patent holder
for a licence before implementing the invention, thus granting
her a broad power over her competitors. To reduce such power,
the industry resorted to agreements to bind patent holders to
certain licensing conditions, usually referred as the "fair,
reasonable and non-discriminatory" (FRAND) terms.

In most cases, such licences make a proper Free Software implementation
of the standard impossible, due to numerous incompatibilities
with the way Free Software functions and is distributed. As a
consequence, FRAND licences cannot be considered fair, reasonable
nor non-discriminatory.

What is FRAND?

A major challenge of FRAND is it is a fuzzy concept, involving
subjective judgment that can often only be made firm by legal
action. For example, there is no consensus on what are "fair",
"reasonable" and "non-discriminatory" terms:

Fair primarily relates to the underlying
licensing terms, which should not be anti-competitive nor would
be considered unlawful if imposed by a dominant firm in their
relative market.

Reasonable refers mainly to licensing rates.

Non-discriminatory relates to both
the terms and the rates, requiring similar treatment for each
licensee.

Why is FRAND incompatible with Free Software?

FRAND licence terms are usually negotiated in secret and kept
confidential by the parties involved. However, FRAND terms seem
to often require a payment of royalties based on the volume of
distribution (such as the number of distributed copies). They
also rarely allow sublicensing to the third parties, in a way
that requires no further action from the sublicensee to obtain
the same rights to implement the standard. It is a well established
fact that such requirements are incompatible with some of the
most common terms under which Free Software is developed and
distributed 1.

Free Software gives its user a high level of control over the
software by granting far-reaching freedoms to inspect the source
code, and to study and innovate upon that software. It is based
on the principle that everyone, whether an individual or a company,
can be a user, developer, distributor, or any combination of the
above. Only the terms that permit technology to be implemented
and distributed without violating these conditions will be in
practice compatible with Free Software 2.

For example, Section 7 of the GPL v2, which is one of the most
widely used Free Software licences, ensures that the presence of
any extra restriction preventing users from exercising the freedoms
in the license -i.e. imposing patent royalties or the requirement
to obtain an individual licence- revokes the right to continue
distribution of the software.

As Free Software gives each user the freedom to redistribute
the software itself, keeping track and collecting royalties based
on distributed copies is also, in practice, impossible. This is
not just a matter of source code licenses; any terms which require
a developer to seek additional permission beyond the licence in
order to use, improve or share the software are incompatible with
the norms of open communities developing Free Software.

Another incompatibility of FRAND with Free Software lies in
the requirement of the individual licence that usually cannot be
automatically transferred to the third parties. This is contradictory
to Free Software that automatically grants the same rights and
freedoms to downstream recipients without the necessity to
sublicense.

Consequently, it has been estimated that due to modern near-universal
software development practices, hardly any new product on the
software market is built without containing easily accessible
Free Software code3,
which makes Free Software indispensable for innovation and the
economic growth.

In this respect, the "non-discriminatory" criterion cannot be
met, as it excludes substantial number of actors and innovative
force that work with Free Software from implementing the FRAND
licensed technology. Subsequently, it follows that a FRAND-licensed
Standard Essential Patent (SEP) is neither "fair" nor "reasonable".

Can FRAND be really FRAND for Free Software?

Some rare FRAND terms allow payment of a lump sum amount, so
that the developers can avoid keeping track of the distributed
copies. This practice might seem like a viable option, but only
big corporations with a dedicated legal department are capable
of negotiating such terms, thus excluding individual programmers
and small and medium enterprises (SMEs). It is essential to
ensure that different actors can enter the market, especially in
the ICT sector, where it is not unusual to go from being a start-up
to a leader company in less than a decade.

Easier access to standardised technologies will instead contribute
to competition, as more new players will be allowed to emerge on
the market and base their ideas on the existing technologies.

The requirement of royalties-per-copy in FRAND is not the only
obstacle between standard's implementation in Free Software.
The inherent incompatibility lies within the fact that FRAND
completely neutralises the collaborative open model behind Free
Software, by restricting the exercise of freedoms granted by the
latter.

For example, it is common for FRAND to include the requirement
to contact the SEP holder to obtain an individual licence. This
is also discriminatory against Free Software, because it would
require any user willing to redistribute modified versions to
contact the SEP holder, wasting time and resources and seriously
impairing the collaborative model that drives Free Software.
History shows developers avoid technologies licensed in this way.

The appropriate licensing scheme for Free Software would be
the one that places no restrictions in exercising rights granted
by Free Software, so-called "Restrcition free" terms. Similar
licence terms can be achieved by forcing FRAND to be compatible
with the GPL by definition. Standard setting organisations (SSOs)
can require participants to the standardisation process to explicitly
agree that a licence is FRAND only if it allows the use and distribution
of the essential patented technology under terms that are not less
restrictive than the GNU GPL v.2 or any later version.

Furthermore, to ensure that such a policy is not circumvented,
SSOs should carefully consider the status of all the components
of any new standard. It is not uncommon for a new standard to be
built upon a previous one. If the latter was drafted under
different rules (e.g. allowing royalty-based FRAND or
unrestricted patents), the full implementation of the new standard
may depend on the licensing terms of SEPs included in the older
standard. Such a situation will undermine the efforts that were
made to properly address the problem of SEPs.

It is also not uncommon for companies to place so-called
"blanket claims", that is to declare that they own SEP without
specifying any details of such patents.4
This practice in addition to the policies adopted in several SSOs
that do not guarantee the accuracy of the information provided,
place unnecessary and burdensome barriers for the standard implementation
by any developer wishing to do so. Hence, the final necessary
complement to this setup is an adequate enforcement system to
ensure that patent holders are kept to their obligations.

Why FRAND is not good for software?

In the field of standards governing software, internet and web,
there is a distinct absence of SEPs5.

This is particularly evident in the policies of several SSOs
working in these fields: for example the vast majority of standards
recognised by the Organisation for the Advancement of Structured
Information Standards (OASIS) requires royalty free terms6
and although the option of FRAND is included in their policy, OASIS
recognises its trend towards royalty-free standards7.
The Internet Engineering Task Force (IETF) discourages encumbered
patent standards in the general instructions to their working
groups8. Even better,
the W3C requires any SEP to be licenced to everyone on royalty
free basis9.

SEP and FRAND emanated from telecommunications sector and through
traditional SSOs, while software, internet and web standards have
developed in a more collaborative way, i.e. through fora and
consortia10. This
difference has to be taken into account while regulating the work
of SSOs. Applying the model that has been developed for one sector
to another, which has practically and historically developed in a
different way, can lead to consequences opposite to the aim of
standardisation. As such, the approach of 'one size fits all' is
inappropriate and can stifle innovation instead of encouraging it.

The alternative to FRAND

The way to achieve the widest interoperability and competition
on the market is to adopt Open Standards that are compatible with
Free Software.11

The rapid development of software, web and internet technology
has been largely based on Open Standards, which are available
free of restrictions and royalties. This shows that restriction-free
standards are crucial in an environment where innovation is rapid
and accumulative, and where most actors are small and lack the
resources to engage in sophisticated patent licensing transactions.
Licensing conditions that pose barriers for such actors to enter
the market or compete with their large counterparts are
significantly hampering the competition and as such cannot be
called fair, reasonable or non-discriminatory. Therefore, only
licences that are truly Restriction free allow the standard to be
an Open Standard, i.e. "free from legal or technical clauses
that limit its utilisation by any party or in any business
model"12.

Furthermore, drafting such standards in a minimalistic13
way will ensure that companies of different size are actually in
the position to implement them, which will achieve true non-discrimination
across different business sizes and models. This will also contribute
to the wider and more effective adoption of standards across industries.
Non-minimalistic standards are instead cumbersome and require huge
investments of time and resources to be implemented.

In addition to Open Standards, the widest adoption of standards
can be in practice achieved by allowing software to act as as reference
implementation too. This is particularly important because for
most software standards the formal specification is insufficient,
and the actual standard is defined both through the written
specification and actual implementations. For the implementer
the reference implementation is more valuable because it allows
her to avoid the extended phase of trial-and-error in order to
resolve specification ambiguities. Hence publishing software under
Free Software licences will contribute to the widest adoption of
standards in practice.

Conclusion

FRAND is not only incompatible with most of Free Software, but
is not designed to govern software at all.

In order to overcome this contradiction, it is necessary to
ensure that SEPs are licensed under terms that are compatible with
Free Software, e.g. Restriction free. However, this option might
still place additional obstacles to the implementation of
innovative technology in Free Software, depending on the actual
content of the SEP licence and on the enforcing capabilities of
the standard setting organisation.

The widest adoption of standards, which is in principle the aim
of FRAND, can be achieved by developing them as open and minimalistic
and by requiring a reference implementation released as Free Software.
These standards will ensure the widest competition of different
Free Software and proprietary actors on the market, without excluding
one or the other.